|
Posted by scott s. on January 2, 2008, 3:42 pm
Please log in for more thread options
> This question has been bothering me for some time. Quicken folds in
> dividends as part of the cost of mutual funds and stocks. This doesn't
> seem to be a good decision for motivating buys/sells or for tax
> considerations in shielded accounts. As an example:
>
> Gain
> Day Transaction Price Purchase Quicken Other
> 1 Buy $1.00 $1.00 0% 0%
> 2 Dividend $1.00 $1.00 0% 100%
> 3 $0.90 ----- (10)% 90%
>
> On Day 3 Quicken shows a loss of 10%, because the dividend is folded
> into the cost basis, but the actual gain is 90%. When buying/selling I
> would use the 90% as an indication to purchase and the (10)% as an
> indication to sell.
>
> When taxes are considered it seems more befuddling to me because tax
> sheltered accounts (401k, Roth IRA, etc.) have no tax liability on
> dividends and it seem to me that folding the dividends into the cost
> basis makes no sense at all.
>
> What am I missing?
>
> Is there any way to not use cost basis accounting?
I'm having trouble understanding what it is you think should
happen, partly because it seems like you are asking a couple
different things.
I don't know what you mean by "dividend is folded into the cost basis"?
total return is typically measured by change in market value plus
dividends plus interest minus costs. return can be compared in
various ways, such as a percentage of amount invested. There are
various measures of performance such as "return on investment" and
"internal rate of return". The way Quicken computes some of these
performance measures has always been a puzzle, unless you dig into
the actual formulas the program uses. Personally, I find Quicken
of limited benefit for determining buy/sell recomendations for
investments.
Another question is the capital gain on an asset held for investment.
Quicken divides that into realized gain and unrealized gain. The
basis is typically all the costs incurred in acquiring and placing
in service an asset, less allowed or allowable depreciation.
For securities held for investment of course, there is no "placing
in service" nor "depreciation".
A third question is how to compute your basis in an asset for
purposes of federal and state income taxes.
I think in general the cost basis is used, except in certain
instances. In tax deferred accounts, the tax basis is typically
the amount of contributions made in after-tax dollars.
Finally, I don't know what "cost basis accounting" means?
scott s.
.
| 
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap